United States

Year-end payroll reconciliations – organize first!

Best practices for managing expatriate payroll at year-end

INSIGHT ARTICLE  | 

Hopefully you and your internal corporate tax team have been reconciling your U.S. payroll reporting requirements each pay period, each month or each quarter. This puts you in a great position when October arrives, for both you, your assignees and your external tax advisor. If you haven’t kept up during the year, you may now feel overwhelmed by the task at hand.  Your W-2s need to be correct and proper withholding must take place.

If your U.S. payroll reporting is understated, penalties may apply.  Correcting the withholding is a daunting task even if you only have one assignee.  You may ask “where do I begin?”  The most important thing to do is to develop a plan.  Here are some steps you can take.   

Organize First

  1. Use a secure internal portal where data can be collected so that your inbox doesn’t clog up. Create folders for each team providing you with data (i.e. U.S. payroll, Non-U.S. Payroll, U.S. expense reports). If a secure portal is not available, prepare to print a significant number of documents daily.
  2. Set a deadline for your assignees and the team members to submit required data. Note: Your non-U.S. colleagues may have holidays that differ from ours. The sooner you inform them of your deadline the better.  Deadlines should be based on your payroll’s year-end cut-off date. Set calendar reminders for yourself and your team to remind them of your timing. 
  3. Obtain a budget for external tax advisor support if you need help with the project of data collection or reconciliation.
  4. Immediately ask your assignees to update their tax travel calendars through the end of the year. Ideally their calendars are up to date, but many busy executives save this until the last minute.  You can incentivize them to do this by advising them that their U.S. tax return will likely be completed much faster if their W-2 is accurate.
  5. Instruct your U.S. and non-U.S. payroll team to upload all of the payslips for your assignees into the portal.
  6. Instruct your relocation provider to upload their relocation reports for each assignee.
  7. Request that expense reports for all assignees be uploaded. If your assignees report expenses in their host country as well then you will need to request reports from the host location.
  8. Request a summary of equity activity for your assignees during the year from your equity team.
  9. Ask the home and host finance team to provide you with any amounts that the assignees have paid to your company during the year; or amounts they paid that were not included in payroll. Ideally details about the payment should be included (i.e. Dutch tax refund from 2014).
  10. Review assignment letters for each assignee to reconfirm what they were eligible to receive.
  11. Reconfirm each assignee’s visa status (J visa, H visa etc.).
  12. Reread the information from your tax advisor regarding the amounts that were due to or from assignees.

Getting it done

  1. Create a template that you can use for each assignee. This should contain items such as type of assignment, assignment location, fiscal or calendar year-end in assignment location, assignment start and end date, visa status in the United States, and a breakdown of wage components such as salary, home leave, housing, transportation, foreign taxes, etc.
  2. Determine their status. Are they long-term or short-term? Inbound or outbound?
  3. Take each assignee’s case one by one.
  4. Pull out your trusty taxable vs. non-taxable items matrix so that you can code the items that are taxable in the United States for your payroll team. If you don’t have a matrix ask for your relocation or tax provider to create one for you.
  5. Compare the home and host payroll. Some items may have already been accounted for in your U.S. payroll if the host country is running a shadow payroll.
  6. Review business travel vs. home leave travel to eliminate non-taxable travel that may be a business expense vs. a taxable event to the assignee.
  7. Review equity compensation to see what needs to be reported in the United States.
  8. Calculate any necessary gross-ups needed. Note: You may even be able to remove assignees from your tax program depending on their status. This saves costs and gives them back their tax reporting freedom.
  9. Share your work with your accounting and corporate department (as well as your tax team) to confirm that all cross charges were made during the year.

Managing your company’s payroll tax obligations may seem like a daunting task but with some good planning, it can still be done accurately and on time. 

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